Local airlines upset despite travel boom
They blame intense competition, high fuel prices
Local airlines nowadays carry nearly double the number of passengers on domestic routes compared to what was five years ago but the surge hasn't translated into profitability, said executives.
Price cuts to attract travelers and rise in jet fuel prices and other operational expenses have reduced much of the scope to post profit from the soaring air travel demand, raising concerns about the long-term business viability of some operators.
The number of people opting for air travel on domestic destinations jumped 80 percent to 11.72 lakh in 2017 from 6.48 lakh in 2013, data from the Civil Aviation Authority of Bangladesh showed.
The number is expected to go up further by the end of this year.
“The domestic market is booming like anything,” said Biman's Spokesperson Shakil Meraj recently.
“A new breed of customers is emerging because of rising disposable incomes and the middle class is travelling more by air nowadays to cut long and tiring travels by road.”
The state-owned carrier transported 7.10 lakh passengers in 2017-18 on the domestic routes, three times the number it transported in 2013-14.
The airline plans to carry more in the coming months by increasing capacity. “We are going to double the flights on Dhaka-Saidpur and Dhaka-Jessore routes as we are adding a Dash-8 aircraft this month,” Meraj said, adding that weekly flights to these northwest and southwest destinations would increase to 14 from the present seven.
The number of flights to Rajshahi and Barisal would also increase, he said.
Meraj said air travel on the domestic routes would be robust in the coming days driven by rising business and investment activities. Yet, from revenue perspective, the contribution of domestic travellers is less than that of international travellers.
Executives of private airlines shared a similar story, saying the growth of travellers has not facilitated an increase in per passenger yield.
“We see a positive trend in air travel. The market is growing but per passenger yield is very low owing to competition among airlines to gain market share. Besides, Biman is also keeping the fares very low,” said Mofizur Rahman, managing director of Novo Air, which began flights in 2013.
A year later, US-Bangla Airlines entered the market that served 76.50 lakh domestic and international travellers in 2017.
Today, four local carriers, including Biman, operate flights on the domestic destinations. As a result, the number of flights has increased, prompting the airlines to cut fares and launch promotional offers to attract travellers and gain a market share.
The fare begins from as low as Tk 2,000 offered by Biman for a trip to the port city of Chittagong from Dhaka. Novo Air and US Bangla charge Tk 2,500 for the same.
“The fare has remained at the same level although oil prices have increased manifold. From our side, it is not profitable even after almost 80 percent load factor,” said Rahman.
Fares will have to be adjusted in line with the increased prices of fuel, he said.
Novo Air, which mainly operates flights on domestic destinations, carried 4.80 lakh travellers on local routes in 2017, up 20 percent from a year ago. The six-fleet carrier, which has recently resumed flights from Barisal, carried 4.70 lakh travellers on domestic routes until August this year, according to the airline.
“The growth in air traffic in the domestic market has been remarkable. But it is depressing that the overall fare has dropped,” said Imran Asif, chief executive officer of US-Bangla Airlines.
Some 8-9 years ago, one-way fare on the Dhaka-Chittagong route was Tk 8,000-Tk 9,000 whereas it stands at Tk 4,000 at present. Yield per passenger has fallen during the period. “If inflation is adjusted, the real fare would be much lower. From this point, it is impossible to make domestic flights profitable,” Asif said.
He said the fare can not be increased because of the risk of fall in the load factor, which will ultimately affect the overall cash flow and the business.
He said US-Bangla's cost per passenger is about Tk 4,000 and it is rising.
“Prices can't be kept at a fair level because of competition. But the outcome of the competition will not be good. None will survive if this continues.”